Special Section: Big-storm insurance restoration, how the pros do it
Property restoration after a weather event can be a catastrophe for your company?or a revenue windfall.
In the coastal town of Sea Bright, N.J., Hurricane Sandy tore buildings apart and ripped them off their raised foundations.
Everything about catastrophic weather events is big?the damage, the shock, the disruption, the infrastructure devastation, the disaster first-response, the cleanup and rebuilding needs, the business potential for remodelers who know how to navigate insurance restoration, and the risk of business failure for those who do not.
It seems that outsized weather occurrences?from Midwestern tornadoes to Western forest fires to Atlantic and Gulf coastal hurricanes and floods?are bigger, badder, uglier, and more frequent than ever.
"We've had bigger storms and more of them in the past 10 years,? says Rusty Amarante, certified restorer and director of operations at BELFOR Property Restoration, which is part of BELFOR, the world?s largest property restoration company.
With that trend has come an uptick in the big-storm insurance restoration business. Lee King, certified restorer, of mitigation and restoration contractor AfterDisaster, Greensboro, N.C., says that in recent years, ?More companies have entered the marketplace due to the anticipated demand for services.?
Insurance Restoration Estimating Software
Insurance companies require highly specific, component-based cost estimates broken down by square foot across walls and ceilings and into rooms. Emmis Chellman runs the Delta Disaster Services of Southern Colorado franchise, which is handling scores of properties in the Colorado Springs area that suffered fire and smoke damage from the Black Forest fire in June 2013. For Chellman, efficient, accurate, approval-ready estimating is crucial. He says, ?You can write an estimate 10 different ways. It?s much easier for everyone to reach an agreeable number? if you use estimating software that adjusters use, because you will detail costs the same way they do. Chellman uses Xactimate, the estimating software that most insurance companies use. Some companies require estimates to be prepared using Xactimate or another particular software system. Others may accept estimates generated on any of several recognized insurance-compatible software systems. According to Peter Crosa, an independent claims adjuster and industry educator, these include:
Entering the marketplace and surviving in it are two different things. Amarante says catastrophe insurance restoration (CAT) is ?a terrific profession, but it?s not for the weak-hearted.? It?s in a class by itself. Not only is it very different from other remodeling work, Amarante says, but there is also ?a huge difference? between CAT and other insurance repair work. ?The sheer logistics,? he says, can be daunting because ?there are consequences everywhere you turn.? Getting to the site, finding fuel, food, supplies?it?s all difficult. That?s not even counting the demands of performing the CAT restoration work itself.
Still, if you do CAT work right, ?You can make as much in a month as in a year? doing other remodeling work, says Tracy Bachtell, vice president of business development at Paul Davis Restoration, a national franchise network of water, fire, and mold cleanup and restoration specialists. ?It?s rewarding when you get the work done? and know you have helped people?s lives return to normal, he says.
Dave Robbins, certified restorer, of Sharp & Robbins, a damage mitigation, property restoration, renovation, and new-construction company in Bartlett, Tenn., puts it this way: ?There?s plenty of room in the restoration industry for quality individuals and companies to get involved. But they have to be prepared and they have to understand exactly what they?re getting into.?
To explain what?s involved and how your company can make a success of it, industry pros weigh in on the complex world of CAT response.
When a large-scale weather event hits, the entire infrastructure of the area can go down. Roads are impassable, supply lines are cut, power is out. Damage areas can be unreachable, and access to basic services is crippled. Ron Wasserman, CKBR, of Custom Kitchenz by Ron Inc., Island Park, N.Y., lost his own home, belongings, office, vehicles, and relatives? homes in Hurricane Sandy. Just to keep his business running?and participate in initial recovery efforts?he had to drive four towns away to a location where mobile cell phone towers enabled him to make calls and retrieve messages.
Once damaged properties can be reached, restoration work is approached in phases.
First, insurance adjusters and disaster recovery teams come in to inspect the properties and assess the damage. The adjusters authorize initial mitigation to protect the properties from further damage. Emergency response teams handle this work. Some of these responders may be local, but many will not. Like other large operations, DKI, the largest disaster restoration contracting organization in North America, mobilizes trained mitigation crews from around the country, says DKI Holdings President and CEO Dan Cassara. The stop-damage work ranges from demolition, boarding up, and contents removal to drying, decontamination, mold remediation, and treatment for smoke damage.
Insurance Adjusters 101
The person who holds the key to what the insurance company will pay for your work is the insurance adjuster, who can be tough to deal with. Industry educator and independent claims adjuster Peter Crosa explains that most adjusters are battle-scarred. As a rule, he says, ?They are cynical, pessimistic, embattled, thick-skinned, [and] used to fighting fraud. They are used to saying no a lot and being the bearer of bad news??that is, what?s not covered under a property owner?s insurance policy. Beneath that forbidding exterior, most adjusters simply want to do right by the insurance company and the insured. Crosa advises contractors, ?Endear yourself to that market. Break the barriers, gain their respect.? Understand and meet their expectations, and you can develop a cooperative and positive working relationship with adjusters.
Not all insurance adjusters are created equal. It?s important to understand which type of adjuster is involved. There are three main types:
- Staff adjusters are insurance company employees. They may have the authority to write checks on the spot. They may be less experienced than other types of adjusters.
- Independent adjusters are paid by the hour and may represent a number of insurance companies. Crosa says independents may be more experienced than staff adjusters; more likely to understand the profit and loss side of a contracting business; and more likely to be flexible in reaching agreement in cases of controversy as to what work needs to be done and what to pay for it.
- Public adjusters receive a percentage of the assessment. They tend to be very aggressive in assessing damage?sometimes even doubling the insurance company?s assessment, Crosa says. They often represent the insured in disputes with insurance carriers. If a contractor is known to work with a public adjuster, insurance companies may not want to work with that contractor, Crosa says.
Don?t get confused about general adjusters. They can be staff, independent, or public adjusters. What sets them apart is that they are high-level adjusters, usually very experienced and knowledgeable about construction.
For more on adjusters and how to work with them, visit Crosa?s website, www.sshca.net.
Aside from the demolition, much of this mitigation work is highly specialized, requiring expertise in the science and treatment of water-borne toxins, mold, smoke, and other property contaminants; technical equipment and treatment products; a trained labor force; and liability coverage. This is a business ripe for liability problems; if you do it wrong, you won?t get paid and you will risk being sued. Insurance-restoration practitioners obtain training and certification in order to qualify for this work and receive approval from insurance companies to perform the work. An option for general contractors is to subcontract the mitigation to a trained and certified specialist.
The second phase of CAT restoration is returning the property to its pre-catastrophe condition, through reconstruction or repair. Most general remodeling contractors can more safely and confidently participate in this phase. One reason: They have the knowledge, experience, and credentials needed. Another reason: As King says, ?The repairs phase is easier to enter and fund than the emergency services phase. In repairs, time is available to properly estimate the job and reach an agreed-upon price, along with terms of payment.?
It?s best to walk the job along with the insurance adjuster during the property inspection. That way, the contractor and adjuster can discuss, define, and agree on the scope of work at the start, saving time and limiting estimating and payment authorization problems later.
In fact, many property restoration companies like to subcontract the rebuilding to qualified, local contractors so they can concentrate on mitigation. Cassara recommends that remodelers ?partner up with a local property damage restoration company?or reach out to DKI? and other large firms to join their network of subcontractors. ?We prefer to work with local contractors,? says Roy C. Hinton, chairman-president-CEO of Claims Service Corporation of America, an independent adjusting and claims management company. ?They?ll be there long after the storm? to service the property owner?s needs, he adds.
The biggest mistake made by general contractors new to CAT restoration, King says, is ?overcommitting and underfunding.? Though it may be tempting to jump in and help, if you work on the property without written authorization and a cost agreement from the adjuster and/or owner, don?t expect to be paid (especially after the initial, emergency demo, which the owner may pay from the deductible). Even with authorization, don?t expect to be paid quickly. ?Be prepared to fund at least 90 days of operating capital for the business,? King says. ?Insurance claims are very slow to be paid? and generally are not paid until all work has been completed. Don?t expect progress payments, he adds.
Patricia Harman, director of communications for the Restoration Industry Association (RIA), goes even further, saying, ?Insurers are stretching longer before paying. It may take as long as 120 days, or up to a year or two to collect. Contractors need to be prepared to cover materials and labor? for an extended period.
Michael Mastous, president of Delta Disaster Services, a property restoration franchise company, advises contractors to contact their bank immediately to arrange financing. Ideally, contractors can tap into a pre-arranged line of credit.
Financial staying power isn?t the only essential for avoiding problems and protecting profits in CAT restoration. Before committing to move forward with insurance restoration work, run through this checklist:
- Verify the property owner?s insurance coverage.
- Confirm exactly what the insurance covers and does not cover, and what the property owner must pay in deductible.
- Reach agreement with both the property owner and the adjuster on a detailed scope of work.
- Agree on payment authorization; once your work has been completed, a plan should be in place for the property owner to sign a certification of completion and send it to the insurance company.
- Insurance checks usually are payable to the property owner and mortgage company. Make arrangements to be paid in a timely manner from these payouts; if possible, have your company name added to the checks.
- Obtain written contracts for work to be performed, including payment terms. ?Under no circumstances should the contractor do something on an emergency basis unless the paperwork is in place,? says industry educator and independent claims adjuster Peter Crosa.
- Assure that you have the licenses, certifications, and other qualifications required to perform the work.
- Confirm that your company?s own liability insurance covers work you perform.
- Make sure your crews and subcontractors have the training, equipment, and protective gear to be on the property and do the work.
- Make sure you have access to the labor and materials needed.
- Know the other project participants. ?Their reputation is going to become yours,? Hinton says. ?If you hook up with a company convicted of insurance fraud, it will ruin your reputation.?
- Make sure the mortgage company will not present a barrier to payment for your work. Ask the property owner to provide the name of the mortgage company and, with the property owner, contact the company regarding the storm damage, Mastous says.
- Do not work on projects if the property owners are behind on their mortgage payments, Harman advises. ?Since the bank is on the check as a payee, it may try to keep the money if the homeowner is in arrears on the mortgage. The contractor will be left high and dry.?
- Avoid locations where the loss is total, Mastous says. The municipality is likely to revisit setbacks and other infrastructure requirements, which can take years. ?The best project for remodelers,? he adds, ?is a house that has partial damage. You can get in and do the work in 30-to-45 days. That?s where the money can be made.?
- Be ready to keep excellent records. Once the work begins, you will need to be diligent about documentation. Submit receipts, time cards, and detailed proof of expenses to insurance adjusters, and most will revise the approved payout if costs exceed the estimate.
- Trust your gut. Harman says RIA members tell her, ?If anything about the job doesn?t feel right,? it?s best to walk away.
For more tips on what to expect and how to prepare for CAT restoration work, check out the RIA briefing, ?Contractor Orientation to Catastrophic Disaster Work? (visit http://bit.ly/19itblV).
Ready to gear up to participate in the CAT business? Start by educating yourself. Explore the industry association websites. Read books on insurance restoration. Attend industry workshops. Familiarize yourself with property insurance contracts. You need to understand ?the language, the coverage, the responsibility? set forth in contracts, says Clay Humphries, executive general adjuster and vice president, southern region, Vericlaim, Henderson, Tenn., a global loss adjusting and claims management company. Often insurance holders do not understand, so the responsibility for doing so rests with you. Reach out to local insurance representatives?agents and adjusters?to introduce them to your company and solicit advice on how to meet their needs and expectations. Ask them for names of insurance restoration specialists they respect, then invite these peers to lunch to talk about the business.
The Restoration Industry Association (RIA) and the Institute of Inspection Cleaning and Restoration Certification (IICRC) offer dozens of training programs and certifications in different areas of property restoration and levels of expertise. Each state and region has its own certification requirements, but Dave Robbins, CR, of Sharp & Robbins, Bartlett, Tenn., says entry-level insurance restoration professionals need at least these three: Water Damage Restoration Technician (WRT), Applied Structural Drying Technician (ASD), and Fire and Smoke Restoration Technician (FSRT).
Next: Prepare your company. Get certified. Have your business attorney generate all the legal documents you need to protect your company in the event of problems or nonpayment by the property owner, Crosa says. Establish a line of credit with the bank to carry you until the insurance company money comes through. Mastous recommends arranging in advance for extra labor and having a plan for obtaining materials and supplies.
?Make yourself visible,? Hinton says. Establish rapport with adjusters and insurance restoration companies. They want to know about good local contractors they can pre-select to hire when catastrophe strikes. By doing a good job, you will make life easier for the insurance representatives and solidify your position as a trusted contractor.
Frank DiPasquale of FDP Builders-Custom Homes & Additions, East Hanover, N.J., had ?an overall good experience? doing cleanup after Hurricane Sandy. To be well-positioned for work in the next storm, he recognizes more exposure is needed. ?I had a sign made up after Sandy that includes storm damage repair as a company service,? he says. Plus, he added repair service to his advertising. ?Storm-damage companies are looking for more contractors,? says DiPasquale, who wants his company to be easy for them to find. PR